HOW CONSTRUCTION FINANCING WORKS
Most people understand how traditional mortgages work: homes are acquired through a combination of the buyer's cash contribution and the lender's contribution, or "mortgage." Construction loans are related to traditional mortgages, but distributed differently.
As opposed to issuing the entirety of a debt at once, construction lenders issue debt in parallel with certain progress milestones. Additionally, construction loans are typically distributed after all the borrower's cash equity (closed on escrow at construction loan closing) is used by initial progress payments.